The Market Ticker
Commentary on The Capital Markets- Category [Federal Reserve]

So LinkedIn is being bought by Microsoft.

The latter admits, however, that the acquisition will not be accretive to earnings.  In other words the acquisition is "strategic", not made to build the totality of the book of business.

This in turn means that it is going to be destructive to jobs net-net.

And why did Microsoft think that paying 50%+ over the market price was a good idea?  Because Microsoft can emit debt into the market at essentially zero cost.

This in turn means that they can conduct non-economic transactions "on the come" that wind up costing people jobs since there is zero, or nearly-so, cost of capital to perform these transactions.

This is what ZIRP does folks.  It spurs people to do things that they would otherwise not do because they are, at their core, uneconomic.  That is, there is no real business case for them when one looks at costs and benefits, other than a speculative bet "on the come" in the direction of a market (in this case cloud computing.)

If the cost of capital was above the GDP expansion rate by a couple of percent for short-term funds (say, a 4% Fed Funds rate against 2% GDP) and more for a longer term these sorts of deals would never get done and the jobs would not be destroyed.

LinkedIn, while trading at a sky-high valuation, was profitable.  Therefore, there was no reason to believe that the firm's jobs would go away on their own.

They will now, however, as the firm is "swallowed" and Microsoft attempts to "integrate" the company.

I suspect they'll fail too, but that will be in the longer term.  In the immediate term The Fed is destroying the job base of America, one company and one employee at a time.

View this entry with comments (registration required to post)
 

Main Navigation
MUST-READ Selection:
You MUST Change Your Attitude

Full-Text Search & Archives
Archive Access
Legal Disclaimer

The content on this site is provided without any warranty, express or implied. All opinions expressed on this site are those of the author and may contain errors or omissions.

NO MATERIAL HERE CONSTITUTES "INVESTMENT ADVICE" NOR IS IT A RECOMMENDATION TO BUY OR SELL ANY FINANCIAL INSTRUMENT, INCLUDING BUT NOT LIMITED TO STOCKS, OPTIONS, BONDS OR FUTURES.

The author may have a position in any company or security mentioned herein. Actions you undertake as a consequence of any analysis, opinion or advertisement on this site are your sole responsibility.

Market charts, when present, used with permission of TD Ameritrade/ThinkOrSwim Inc. Neither TD Ameritrade or ThinkOrSwim have reviewed, approved or disapproved any content herein.

The Market Ticker content may be reproduced or excerpted online for non-commercial purposes provided full attribution is given and the original article source is linked to. Please contact Karl Denninger for reprint permission in other media or for commercial use.

Submissions or tips on matters of economic or political interest may be sent "over the transom" to The Editor at any time. To be considered for publication your submission must include full and correct contact information and be related to an economic or political matter of the day. All submissions become the property of The Market Ticker.